Channel Surfing

Retail businesses that venture onto the Web get the best and worst of both worlds

by Lisa Hamm-Greenawalt

It was just a little condom store in Greenwich Village, but founder Adam Glickman thought CONDOMania could be more. First he tried growing the store to eight franchises, but he was no good at managing them. So he moved on line, nd that's where CONDOMania found it's home.

"We knew that condoms are a sensitive product that bring up lots of personal issues," says Glickman. "What we didn't realize was how well-suited the Internet would be to selling these products." A virtual plain brown wrapper, the Net allows people reluctant to purchase prophylactics in their neighborhood pharmacy to see the products in detail, buy them on line in privacy and anonymity, and get their questions answered.

In just four years, the Web site has become the core of CONDOMania's business, drawing 3,000 visitors a day and amassing 30,000 regular customers, Glickman says. The company has been growing steadily since it went on line in January 1996, and the Internet division has been making a profit for more than two years. CONDOMania made $600,000 in 1995, when it was operating stores in New York and Los Angeles. By 1999, with a Web site and just the New York store, the company grossed $1 million, most of which came from the Internet.

Combining offline and online commerce can be tricky, but many companies turn to the Internet as a way to expand business when other avenues of growth appear unclear. Not all companies and products are well-suited to e-commerce, but those that find it a good match can use the Net to move in new, sometimes unexpected directions.

As recently as last year, that may have meant getting caught up in the dot-com IPO frenzy (and going out of business soon after). But many companies with offline experience and expertise have managed to create more profitable and longer-lasting online operations than their Web-only brethren.

Like CONDOMania, Lodging.com discovered that combining the scope of the Web with the services of an old-fashioned company--in this case, a dying travel agency -- could produce a thriving hotel booking enterprise. Similarly, Camera World, a 25-year-old retail store with a mail-order sideline, combined e-commerce with a companion catalog to become a major force in its field.

The Safe Sex BusinessGlickman began his career by peddling condoms door-to-door at Tufts University in 1987. He packaged the safe-sex devices in oversized matchbox covers featuring the school's mascot, a jumbo elephant, with the slogan, "A safe jumbo is a happy jumbo."

"My entire generation wanted nothing to do with a condom," says Glickman, who was majoring in philosophy. "I decided one way to get around this stigma was to help people think about condoms in a different way--not just as a barrier, but as a school memento or a souvenir."

In 1989 Glickman and a partner started a small company customizing condom packaging, driven by the belief that condom use should be fun. They even introduced a glow-in-the dark condom. Two years later, the pair opened CONDOMania in Greenwich Village, which Glickman claims was America's first condom store.

The company soon opened a second store in L.A., and tried to expand the concept by allowing licensees to open six other stores, but "we learned that we were ill-equipped to manage licensed relationships," and the stores were closed by the mid-1990s, Glickman says.

The partners split up, but Glickman, who is CEO, retained CONDOMania, and in 1993 started a small mail-order sideline using a homemade catalog. He discovered the Internet in 1995 and was "blown away by the potential of it and the amazing application of the Internet for our business." Glickman taught himself HTML and Photoshop, and put together a rudimentary e-commerce Web site. He hired a consultant to finesse it and set up a shopping cart function, opening for business in cyberspace in January 1996.

"All of a sudden, millions of people had access to our condoms," says Glickman. "When our first order came in from Japan, I just fell over. It was like our concept was on steroids. Like someone had taken dynamite, put it underneath our brand, and just splattered it all over the world!"

Staffing has doubled to 20 people, 10 on the retail side and 10 in the Internet division. Warehousing remains a cheap proposition for such a compact product. "I can put a thousand condoms in a shoebox," says Glickman, who uses only a couple of thousand feet of storage.

In 1999, CONDOMania "got a little caught up in the dot-com mania" and flirted with the idea of closing the retail stores altogether and selling exclusively on line, confides Glickman. The business raised a half a million dollars from family and friends to get more aggressive on line and closed down its L.A. store in February 2000. "Then the whole dot-com sector melted down," he says ruefully. "It became evident that the Internet is not an industry in and of itself. It is just another sales channel."

CONDOMania has since revised its business plan yet again, seeking to put toward a multi-pronged approach that leverages the brand across several channels: mail order (with a new glossy catalog), retail store expansion (opening six to eight new stores), and a substantial upgrade in technology infrastructure for e-commerce and fulfillment operations. It will also aggressively promote its Internet operation.
He thinks a large portion of CONDOMania's formula for success in its Internet venture rests in the fact that it has a unique voice, created through its stores and its relationships with customers, which has been incorporated into the site.

"The stores are brightly lit with great music and relaxed attitude," Glickman explains. "Despite all of that, we are aware that there are some people who are just not comfortable approaching these issues in a public space." On line, customers can get answers in a fun, playful, private way. The Condom Wizard helps find the "ideal condom," Lucy Lube answers sex "how-to" questions, and "Ask Sidney" dispenses relationship advice.

The site also seeks to educate consumers about safe-sex practices in an entertaining way. "The Internet has given us an incredible platform through which to disseminate this information," says Glickman. "It has given our customers a channel of communication that allows them to feel safe and comfortable asking hard questions. We were able to take our mission and our product and go much deeper than we ever thought we would be able to do," Glickman says.

Say CheeseCompared to CONDOMania, Oregon-based Camera World has had a surprisingly smooth growth spurt. It began as a little photo shop in downtown Portland, and had been selling high-end camera equipment to photo enthusiasts since 1977. It took business on line in 1998 and was stunned by its immediate success. The experiment has been so lucrative that the company has changed its name to cameraworld.com and made the Internet the core of its operations.

The Net propelled Camera World out of its tiny niche into a much larger potential audience of general consumers, but marketing vice president Tom Steele feels the biggest factor fueling e-commerce was the decision to launch biannual direct-mail catalogs shortly after opening for business on line. "We use them in coordination with one another," he explains. "You get our catalog and you have 2,000 reasons to log onto the Web site and shop." The glossy publication can display about 2,000 products while the Web site displays 13,000.

Camera World, which also ran a mail order sideline that advertised in the back of Popular Photography magazine, had experienced flat sales for five years before taking to the Net. As cameraworld.com, it has seen its customer base double and revenue increase from $61 million a year pre-e-commerce to $79 million the first year. Steele expects sales to double within three years.

"The strategy we took was essentially clicks and flips. You're clicking on the Web site or flipping through a catalog," says Steele. He says the company took a lot of heat for that strategy, which has since become hip as companies like Amazon.com are marketing with glossies.

CEO Terry Strom says it helped that cameraworld.com got on line early, with a name camera buffs recognized. Customers could buy on line or call in their orders, a crucial option for people purchasing such intricate products, and Camera World already had an existing warehouse, call center, and customer service department.

"We basically leveraged our existing operation, and that's what made it so natural," he says.

Camera World, which had a staff of 90 before launching the Web site and catalog, now employs 160 people. In addition to a Web and publishing staff, more people were needed to answer phones, stock the warehouse, and fill orders. The company has also moved into a building with greater distribution and call center capacity.

The site, which had few competitors before late 1999, now has more than 50 rivals on line. But Strom says the growing popularity of digital and online photography augurs well for cameraworld. com's future.

Travels and TravailsFor Lodging.com, the Internet helped rejuvenate a lifeless travel agency and a limping travel information Web site, marrying the two to create a major hotel booking business. Unlike CONDOMania and Camera World, Lodging.com was originally started as an online-only business, but found it needed to look to an offline company for the experience and infrastructure it needed.

They say the first year of marriage is the toughest, and that was certainly true for Stuart Travel and Lodging.com. They labored to bridge the gap between the old world and new after the site acquired the agency in 1997. By 2000, however, the new Lodging.com expected to book 100,000 hotel reservations and earn $30 million in revenue.

Bill Marbach says he and his partners--Ed Silver, a high school friend with a technology degree, and his father, Carl Marbach, a retired trade magazine publisher--spent about $200,000 to launch the Internet-based travel publication in 1995. They hoped to make money by building a travel database and selling ads, but soon realized that users wanted to book hotel rooms themselves.

"We realized we didn't know a lot about the hotel booking business," says Marbach. Lodging.com, based in Boca Raton, purchased 40-year-old Stuart Travel of Stuart, Fla., which had four long-standing employees sitting around hoping for walk-ins, and rolled out an 800-number that routed callers to the agency. The two companies merged into one online hotel booking company in April 1997.

"For the rest of 1997, we sat there in amazement trying to handle the influx of calls," says Marbach, vice president of sales, who used to be a newspaper writer.

Lodging.com rushed to upgrade the travel agency's phone system, hire more employees, and hook up with travel network Worldspan. Still, to contain the torrent of calls, it limited the number of times it posted the 800-number on the site. Techies tinkered with the site's interface to make it easier to book on line. They even offered incentives for booking on line, such as cash-back rebates and contests. Soon, more than half of the visitors were booking hotel rooms directly through the Web site.

Lodging.com did 40,000 bookings in 1998. Hotels began taking notice and offered cut-rate inventory, a more profitable option than commission sales. Meanwhile, the company maintained both offices for almost two years, with employees driving an hour back and forth between them. By early 1999, the two businesses were mostly consolidated in Boca Raton, and in October 2000, the travel agency was shuttered.

"Now Stuart Travel exists as nothing more than a plaque in our Boca Raton office," Marbach says. The merged enterprise has grown to a 40-person company.

In the year before expanding into hotel bookings, Lodging.com did less than $1 million in revenue, and Stuart Travel brought in less than $100,000. Together, they've now hit the $30 million annual revenue mark, and Marbach expects that to double every year. He hopes the Web will enable Lodging.com to resell its hotel inventory to other travel sites for even greater profits.

"That will be one of the main sources of growth for us over the next couple years," he says.

Still, the transition wasn't easy. "We really thought when we bought Stuart that we were going to turn this on and sit back and watch this scoreboard in the sky go, 'Ka-ching! Ka-ching! Ka-ching!' It didn't work that way," Marbach says. The site needed to add an inventory search function, credit card guarantees, a customer education section, well-defined cancellation rules, an FAQ section, and more.

Marbach says the priority was to create an easy-to-use site, with "a real world person on the other end of the phone line if they had any questions." It was helpful, then, to have the experience of a real-world travel agency.

But when the two companies merged, two cultures had to as well: the old-school travel agency that didn't even have voice mail fused and the high-tech Web site with a "fun, quirky" culture. "It was difficult for the people at Stuart to see this as an interesting opportunity," Marbach says. "Most of them thought, 'I've been getting a paycheck for ten years. How are these young, new guns who took over going to change things?'" Only one of the original travel agency employees stayed on when the two entities finally consolidated.

Marbach says it helped that the site launched relatively early in the life of the Internet and was drawing a lot of information seekers before it began booking hotel rooms. "We were able to ride the coattails of that high-traffic Web site," he says. "We're in a good position to continue to grow. It's a very exciting situation because there's not a lot out there besides us." He says there are only two hotel wholesaler sites bigger than Lodging.com.

As Lodging.com expands into business-to-business commerce and begins selling hotel inventory to other sites, Marbach is satisfied with his company's progress. "We have a legitimate, viable business on our hands--finally," he declares. "Now we're going to put our heads down and not worry about the IPO. We're going to focus on building a great business, and the rest will take care of itself."

Making The Web WorkStories like these offer valuable lessons in how to make the Web work for small business. The most important: the Internet is not a panacea.

"I don't think any company will be able to survive and build a meaningful brand only on the Internet," advises CONDOMania's Glickman. "You really need to be a multi-channeled company. You need to be a brick-and-click, a click-and-mortar, or an on-line partner with an off-line company."

Keeping the Web in perspective also means not blowing your entire wad to promote it. Strom encourages small business owners to limit advertising dollars so they don't cut into profit. It helps to have gotten on line early, when getting high placements in search engines and directories without spending a lot of money was easy, says Lodging.com's Marbach. Glickman says CONDOMania was first out of the gate and already had a significant customer base before competitors entered the field.

But it's more important to make sure the Internet is an appropriate sales channel for the product or service you're selling. Cyberspace can be a brown paper wrapper for a condom seller, a virtual Yellow Pages entry for a hotel booking company, or a place where a photo equipment supplier can show intricate details about its high-end offerings to choosy buyers.

But one should keep expectations realistic. "The Internet is really not a silver bullet. There's not really a turn-key, 'Oh, wow!' thing that the Internet can do. It can help a traditional real business expand its boundaries a little bit," says Lodging.com's Marbach. "It can take someone who sells hotel rooms and allow him to expand from Boca Raton to a global market."

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